Indonesia’s anti-graft agency ‘eager to intervene’ in palm oil sector

A new video by Indonesia’s Corruption Eradication Commission, the KPK, suggests the agency is taking a closer look than ever before at the country’s palm oil sector.

Many palm oil companies aren’t paying their taxes, and corruption in the licensing process for plantations is rife, according to the KPK.

Smallholders control only around a quarter of Indonesia’s oil palm, according to the KPK.

Indonesia’s graft-ridden palm oil sector is in need of an “overhaul,” according to the nation’s anti-corruption agency.

The agency, known as the KPK, is helping guide a sweeping review of outstanding licenses for oil palm plantations, many of which have been issued in violation of procedures. Indonesia is the world’s top producer of palm oil, an edible oil used throughout the industrial food system.

Last week, the KPK published a video about the palm oil sector, arguing that the industry could be a force for positive change, if not for the widespread corruption that underlies the social and environmental problems with which the industry is often associated.

Palm oil companies often take advantage of the lack of legal clarity over who owns land in Indonesia, seizing territory occupied by indigenous and other rural communities, and sending in the police when they resist.

“There are many loopholes that open the way for corruption in the palm oil sector,” Laode Syarif, deputy head of the KPK, says in the video.

Residents of Muara Tae village in eastern Borneo intervene to stop a bulldozer belonging to a palm oil company they say is operating on their land without their consent. Image courtesy of Muara Tae.

One problem flagged by the KPK is that palm oil companies aren’t paying their taxes. Tax revenues from palm oil fell in 2014, even while production and exports soared.

“Many companies do not comply with their tax obligations,” the video’s narrator says.

Corruption is also rife in the permitting process for plantations. The KPK points out that many companies have been allowed to operate in forest areas that are supposed to be off-limits for oil palm cultivation.

Only around a quarter of Indonesia’s oil palm is owned by “smallholders,” according to the KPK. That contradicts a widely circulated figure that 40 percent of the country’s oil palm belongs to smallholders.

The Indonesian government considers any plantation smaller than 25 hectares (62 acres) to be a “smallholding.”

“We hope that Indonesia’s oil palm belongs to the people, not to be monopolized by certain companies,” Laode says.

The KPK also notes that government funds for palm oil are sucked up by the biofuels program, which is diverted to a handful of large conglomerates instead of to farmers who could use it for replanting.

Earlier this year, a union of oil palm smallholders sued the Indonesian government over the allocation of a billion-dollar fund that they say fails to help them rejuvenate their low-yielding oil palms and instead unfairly subsidizes large biofuel producers.

The KPK notes that almost all of the money from the fund has gone to “three large business groups”: Wilmar, Musim Mas and Darmex.

“The KPK has a strong reason to assess the sector,” Laode says, citing past cases in Sumatra, Borneo and Sulawesi where politicians have been arrested for graft related to licensing for plantations.

Rainforest cleared for an oil palm estate in Gunung Mas, on the island of Borneo. Image by Sandy Watt for The Gecko Project.

Investigations published jointly by Mongabay and The Gecko Project have chronicled how politicians have used shell companies and proxy owners as vehicles for corruptly selling licenses to multinational plantation firms.

In one case, the politician in charge of Seruyan, a district in Indonesian Borneo, issued licenses to 18 companies owned by his relatives and cronies. These individuals quickly flipped the companies, with the licenses attached, to Wilmar International and Triputra Agro Persada, two of the biggest conglomerates operating in the sector.

The KPK investigated the politician, Darwan Ali, but never pressed charges.

In another case, the politician in charge of Gunung Mas, another district in Borneo, gave licenses to five companies set up by his campaign manager in the months before he was to stand for re-election. The companies were sold to a Malaysian firm for millions of dollars. Today, the company is using the licenses to clear rainforest in the heart of Borneo.

Both the politician, Hambit Bintih, and his campaign manager, Cornelis Nalau Antun, were jailed for attempting to bribe the chief justice of Indonesia’s Constitutional Court to swing the election in their favor, apparently using the money from the land deals to pay off the judge.

“If managed properly, oil palm can in fact serve as an instrument to alleviate poverty and narrow down development gaps,” the video concludes. “Corrupt practices in the sector can be eliminated.”

Banner: An oil palm fruitlet. Image by Rhett A. Butler/Mongabay.

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